New MMT macroeconomics textbook

This book presents a comprehensive, university level study course in Macroeconomics from a Modern Monetary Theory (MMT) perspective.

Our approach is grounded in the operations of real-world institutions, and our approach clearly identifies the policymaking capacity of central governments. The pedagogy thus starts by putting the currency-issuing government​ at the forefront.

We want students to understand how a modern monetary system operates, how the government and non- government sectors interact, how the central bank and the banks interact, how the labour market works, how trade and capital flows impact on economic outcomes and much more.

Students will appreciate what the capacities of a currency-issuing government are and how fiscal and monetary​y policy can be used purposefully to enhance the well-being of the nation.

Unlike earlier pluralist approaches to macroeconomics in which the teaching sequence begins with an exposition of the standard mainstream macroeconomics (dominated by the New Keynesian approach) and only then qualifies that conceptual structure and framing with some ‘real world’ criticisms and quibbles, we feel students are better informed if we build the narrative from the ground up, based on an understanding of how the monetary​ system actually operates. In adopting that approach, we are informed by our view that the mainstream macroeconomic approach does not provide coherent knowledge upon which to understand those real-world​ monetary operations.

13 Comments

MMT fundamentally misunderstands how the private sector profits without government needing to run a deficit. Private finance creates new net financial assets first and later, if necessary, the central bank backstops them by creating new debt-free money. MMT’s sectoral balance sheets are dogmatic assumptions that share model-based fetishism with orthodox economics.

Isn’t there a middle ground? It’s obvious that profits create funds not used for consumption, but for investment, like Marx or Wicksell described. But it is also obvious that bank create money without the help of the money multiplier. Again, both Marx and Wicksell acknowledged endogenous money. Or did I get it all terribly wrong?

The problem is that the MMT sectoral balance sheet identities are exploded when you include financial sector income. MMT relies on System of National Accounts measures, but those are heavily imputed and inaccurate and getting more so (see “Globalization and the Growing Defects of International Economic Statistics”, https://www.fickleformulas.org/images/pdf/Working%20paper%202%20Linsi%20and%20M%C3%BCgge%202017.pdf ).
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A better model than MMT would not insist that private profit can only come from public deficits. This dogma, asserted over and over by Bill Mitchell, is ludicrously false in the out-the-window world …

Why don’t you ask Bill Mitchell? He has said it many times. It is behind the graph at the top of reddit mmt page: https://www.reddit.com/r/mmt_economics/ That graph leaves out financial sector income such as capital gains, which, if included, would blow up the accounting identity that graph is supposed to provide empirical evidence for.
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See also http://bilbo.economicoutlook.net/blog/?p=5846 , the comment by JKH, which in a following comment is endorsed by “bill” (whom I assume is Bill Mitchell).
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JKH’s analysis ignores the valuation of derivative contracts, which become a new implied claim on the central bank before the central bank knows about it.

Robert, I think you are expanding the definition of financial assets into what are real assets. Equity is a real asset at any point in time. Perhaps it can be turned into a financial asset by selling it, but until then it is not what is meant by a ‘financial asset’. In my understanding ‘financial assets’ are denominated in terms of the currency- if the currency loses value the financial asset will lose value. A real asset will not necessarily lose value. ‘Financial assets’ are not ‘real’ assets in the way I understand MMT.

In other words- you are talking about something else, or changing definitions of terms, when you say the private sector creates net financial assets. That doesn’t mean you are wrong it just means you are not discussing the same thing. But you have repeatedly said that the private sector can and does create ‘net financial assets’. Could you explain what you mean by that?

You make a loan. You sell the default risk and the interest rate risk to other insurers. Your loan is now a risk-free, dollar-denominated asset. You can turn the loan into cash by selling it. The loan has become a new net financial asset. A default won’t affect the loan’s value because the default is insured. The insurer is implicitly backstopped by the Fed, if the insurer defaults and is “too big to fail” (like AIG in 2008). A new net financial asset has been created before the central bank knows it will buy it in a panic …

Ok. So you are arguing that when the private sector firm is implicitly ‘backstopped’ by the currency issuing government, then it has the ability to create net financial assets. I would just say that that ‘ability’ derives from the government backstopping- not from the private sector in any real sense. Without the government, that private sector firm has no ability to do this.

Hi Robert, With due respect my understanding of the difference between financial and real assets as mentioned by Jerry Brown below is the same. I think Bill would agree with Jerry.”In other words- you are talking about something else, or changing definitions of terms, when you say the private sector creates net financial assets. That doesn’t mean you are wrong it just means you are not discussing the same thing. But you have repeatedly said that the private sector can and does create ‘net financial assets’. Could you explain what you mean by that?” This is very interesting and intriguing to me, and I hope to learn something here if you could give an explanation.
Regards
Wayne

I think Bill Mitchell would say that as a whole, the non-Government sector could only be in a position of net saving (surplus) if the Government is running a deficit. I think you are confused by his terminology, he does not mean profit when he says surplus.

I once tried to do this with the story Mehrling tells in https://www.perrymehrling.com/2016/01/great-and-mighty-things-which-thou-knowest-not/ :
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“The limiting case on the other side is that you (or whoever you transfer your money to) are willing to hold the newly created money balances as an asset, so you continue to fund my loan indirectly. Now when Citibank securitizes and sells, it is able to repay its interbank liability to Chase, and for simplicity let’s say that Chase uses that payment to acquire a different money market asset. One way this could all work out is that a shadow bank–money market funding of capital market lending–acquires the security and uses it as collateral for wholesale money market borrowing from Chase. Again, no saving and no investment, but the new money stays in circulation and is not destroyed.”
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My balance sheets: http://subbot.org/bsagent/dialogs/payment_vs_funding.sheets
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I should redo my balance sheets, because I include the Fed whereas Mehrling’s example did not. Even in my version though, the government is not running a deficit because the Fed’s deposit liabilities are not funded by taxes.
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In my version, the role of the Fed could be replaced by a private pension fund which keeps its balance sheet expanded a long time.
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I’ll try to simplify and redo my balance sheet story of how the private sector creates net new financial assets before the central bank knows about them.

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